Correlation Between Japan Asia and Canadian National

Can any of the company-specific risk be diversified away by investing in both Japan Asia and Canadian National at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Japan Asia and Canadian National into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Japan Asia Investment and Canadian National Railway, you can compare the effects of market volatilities on Japan Asia and Canadian National and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Japan Asia with a short position of Canadian National. Check out your portfolio center. Please also check ongoing floating volatility patterns of Japan Asia and Canadian National.

Diversification Opportunities for Japan Asia and Canadian National

0.63

Correlation Coefficient

Japan Asia  Canadian National

Poor diversification

The 3 months correlation between Japan and Canadian is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Japan Asia Investment and Canadian National Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian National Railway and Japan Asia is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Japan Asia Investment are associated (or correlated) with Canadian National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian National Railway has no effect on the direction of Japan Asia i.e., Japan Asia and Canadian National go up and down completely randomly.

Pair Corralation between Japan Asia and Canadian National

Assuming the 90 days horizon Japan Asia Investment is expected to generate 1.19 times more return on investment than Canadian National. However, Japan Asia is 1.19 times more volatile than Canadian National Railway. It trades about 0.03 of its potential returns per unit of risk. Canadian National Railway is currently generating about -0.05 per unit of risk. If you would invest  125.00  in Japan Asia Investment on October 23, 2024 and sell it today you would earn a total of  2.00  from holding Japan Asia Investment or generate 1.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.33%
Values	Daily Returns

Japan Asia Investment  vs.  Canadian National Railway

Japan Asia Investment

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Japan Asia Investment are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Japan Asia is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Canadian National Railway

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Canadian National Railway has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Canadian National is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Japan Asia and Canadian National

The main advantage of trading using opposite Japan Asia and Canadian National positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Japan Asia position performs unexpectedly, Canadian National can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Canadian National will offset losses from the drop in Canadian National's long position.

The idea behind Japan Asia Investment and Canadian National Railway pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.